IRS may share tax info with police to fight fraud

By Patrick Temple-West

WASHINGTON | Tue Mar 20, 2012 6:37pm EDT

WASHINGTON (Reuters) - A surge in tax refund fraud and identity theft has prompted the Internal Revenue Service to consider sharing more tax return information with police, a senior official told a congressional hearing on Tuesday.

In a move that could spark concerns over personal privacy, the IRS said it is considering a pilot program in Tampa, Florida, where identity theft and refund fraud are rife.

"We are limited in what we can supply to local law enforcement," said Steven Miller, deputy IRS commissioner for services and enforcement.

Tax return information is normally kept tightly secret by the IRS. Under the program, exceptions could be made, with the permission of victims of identity theft and tax refund fraud, so that bogus tax return documents could be shared with police.

Tampa has seen a rash of identity theft and tax refund fraud cases since last year, totaling $130 million in stolen funds. Suspected wrongdoers steal Social Security numbers and file returns seeking tax refunds, using an abandoned home or another phony address as a delivery point.

Democratic Senator Bill Nelson of Florida held the hearing to tout his legislation to allow more taxpayer information sharing between the IRS and local law enforcement.

No date has been set for the Tampa program to begin, according to IRS.

In 1976, Congress made it a crime for IRS workers to share taxpayer information.

"There was a reason why we are limited in providing to local law enforcement, in an unfettered matter, tax returns," Miller said. "Congress has treated tax return information as sacrosanct."

Nina Olson, the national taxpayer advocate at the IRS, supported some information sharing, but cautioned that once local law enforcement has access to taxpayers' returns, they could be shared with other people.

Congress should modify the IRS information-sharing prohibition but limit the disclosure of the information for any purpose other than law enforcement, she said.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh; Desking by Lisa Shumaker)

 

Individual Retirement Accounts (IRAs)

The top annual contribution for traditional or Roth IRAs remains at $5,000 for 2011. If you’re age 50 or older by the end of 2011, you can make an additional $1,000 “catch-up” contribution.

You cannot contribute more than your qualifying income for the year, but if your spouse has little or no income, you can contribute to either a traditional IRA or Roth IRA for your spouse based on your earnings.

Traditional IRA contributions may be deductible depending on your modified AGI and whether you or your spouse (if filing jointly) is covered by an employer-sponsored retirement plan. Also, you must begin to take minimum required distributions from the IRA once you reach age 70 ½, but this does not apply to Roth IRAs.

Roth IRA contributions are not deductible, but you can withdraw them at any time tax free. You can also withdraw earnings on contributions tax free after five years if you are age 59½ or older, disabled or paying qualifying first-time homebuyer expenses.

Earnings on both types of IRAs accumulate tax free until distributions are made.

You have until the filing deadline of April 17, 2012 to open and contribute to an IRA for 2011. But why wait? The sooner you contribute, the longer your money grows tax deferred or tax free.

Capital Gains Tax

The maximum tax rate on net capital gains remains at 15% for 2011. If you’re in the 10% or 15% income tax bracket, your tax rate on net capital gains is zero, and you will not be taxed for 2011. The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extended these tax rates through 2012.


To qualify for long-term tax treatment, an asset must generally be held for more than one year before it is sold. Capital gains on investments held for one year or less are taxed at regular income tax rates.

Selling Your Home

Excluding the gain on the sale of a home is another major incentive for buying a home.

If you meet certain requirements, you can keep a significant portion of the profit of the sale of your principal residence without having to pay tax on the gain. Any gain is taxed as a capital gain so the amount owed is not as high. However, any losses on the sale of a principal residence are not deductible.

When you sell your principal residence, you can exclude from income up to $250,000 in gains ($500,000 if married filing jointly or a surviving spouse if the sale is within two years of the other spouse’s death). If you realize a gain on the sale greater than the exclusion, that amount is taxed at capital-gains rates.

To qualify, you must have owned and used your home as a principal residence for at least an aggregate of two of the five years preceding the sale.

The exclusion is available even if you took temporary absences, including vacations, or rented out the home while not living there.

Special rules are provided for sales of the home due to certain health issues, employment reasons or unforeseen circumstances, and for members of the uniformed services.

Keep in mind that if you took a First-time Homebuyer Credit, you may have to repay or recapture some or all of the loan/credit in 2011. Also, if you used your residence as a home office, you may need to make other adjustments.

Job Search Tax Benefit

For many of us, we spend the majority of our day on the job and the hours we typically devote to our work seem to grow even greater during rocky economic times. However, in addition to a paycheck, experience and hopefully some degree of satisfaction, we receive a number of benefits that have important tax implications, one of which pertains to our job search efforts.

Many unreimbursed expenses incurred as a result of employment are deductible as miscellaneous itemized deductions, though they can only be claimed to the extent they are greater than 2% of adjusted gross income.

Included among these expenses are job search costs. These expenses are deductible if the search is for a job in the same line of work, regardless of whether a new position is obtained. However, if a period of unemployment is lengthy, the IRS may disallow the deduction. Also, expenses for finding a first job are not deductible.